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The state of Alaska on Friday settled a seven-year legal battle with natural gas and oil producers over the Point Thomson leases, and the operators in turn agreed to develop the huge gas field.

"Ending litigation and reaching alignment are important first steps, but the state of Alaska and the companies still have much work to do," Gov. Sean Parnell said.

Under the terms of the 85-page settlement, ExxonMobil Corp., ConocoPhillips, BP plc and oilfield service provider Leede Operating Co. initially are to produce by the winter of 2015-2016 about 10,000 b/d of liquid gas condensates, cycle about 200 MMcf/d, and build a common carrier pipeline connecting to the Trans-Alaska Pipeline System (TAPS). Former operator Chevron Corp. on Friday ceded its stakes in Point Thomson to ExxonMobil.

Two wells have already been completed from a central pad in the field. Operators also are required to drill a west well pad by the end of the 2016-2017 winter season.

"Our primary goal for the settlement was to end what we viewed as the warehousing at the Point Thomson field of Alaska's resources, and to get a commitment for near-term production going," said Alaska Department of Natural Resources (DNR) Commissioner Daniel Sullivan.

As an incentive, the companies still risk losing Point Thomson acreage to the state if it fails to meet the benchmarks, even if the economic climate is unfavorable to do so.

"A simple and powerful principle runs throughout this agreement: the more work, the more commitment, the more investment and the more production that occur , the more Point Thomson acreage the companies will retain," Sullivan said.

Point Thomson, about 60 miles east of Prudhoe Bay, comprises 38 state leases on close 93,000 acres. The field holds about 25% of the known North Slope natural gas reserves, an estimated 8 Tcf of natural gas and hundreds of millions of barrels of oil.

After the initial production goals by the producers have been met, three expanded development alternatives are possible, which can be met either individually or simultaneously that include a major gas sale, where commercialization would have to exceed 500 MMcf/d on the North Slope; expanded natural gas liquids (NGL) production, to a minimum of about 30,000 b/d, into TAPS, plus expanded cycling by 2019; and expanded NGL production into TAPS, complex reservoir integration between Prudhoe Bay and Point Thomson, and significant volumes of natural gas for in-state use.

If a major gas sale has not been sanctioned by June 2016, the companies have to begin engineering and permitting for one of the two alternatives. Without a major gas sale by 2019, the companies are to be fully committed to either of the two other alternatives "or lose significant acreage." The operators are also required to commit to oil production from the Brookian Formation by 2018 or risk losing acreage there.

In a letter to Parnell on Friday, ExxonMobil CEO Rex Tillerson, ConocoPhillips CEO Jim Mulva and BP CEO Bob Dudley said the concept of having large-scale liquefied natural gas exports from south-central Alaska would be explored as an alternative to building a natural gas pipeline to connect to Alberta. The three oil majors were said to be close to an LNG export deal with Alaska last month (see NGI, March 26).

"As a result of the rapidly evolving global market...[and] broadening market access, a south-central Alaska LNG approach could more closely align with in-state energy demand and needs," the three CEOs' letter stated. "We are now working together on the gas commercialization project concept selection, which would include an associated timeline and an assessment of major project components including in-state pipeline routes and capacities, global LNG trends, and LNG tidewater site locations, among others."

Parnell met with the three CEOs in early January to discuss options for bringing the state's plentiful gas supplies to Asian markets via LNG tankers (see NGI, Jan. 23).

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